US stock futures and European equities slid on concern that the blistering rally in risk assets has overshot the economic recovery. Treasuries advanced with gold and the yen.
Declines in the US premarket ran from oil drillers to cruise lines. The dollar rose against its major peers for the first time in nine days. Financial shares led losses in the Stoxx Europe 600 Index, while a gauge of European junk-grade credit risk increased the most since April.
After a record-breaking rally that added $21 trillion to global stock markets, valuations look now stretched and technical indicators suggest a pullback is overdue. The World Bank warned the economy will contract the most since World War II this year, reducing incomes and sending millions of people into poverty in emerging and developing nations.
"There are a lot of unknowns that we are dealing with despite the fact that normalizations of economic activities are still on track," Frank Tsui, a senior fund manager at Value Partners, said on Bloomberg TV. "There are still a lot of unknown factors."
On the policy front, the Federal Reserve expanded its Main Street Lending Program, allowing more companies to participate and lessening the burden on banks that create the loans.
The optimism for equity markets came last week after US jobs data showed a surprise decline in the unemployment rate. Wall Street indices surged, with the Nasdaq closing at a record level on Monday. Global markets were mauled in March amid concern over both the short- and longer-term damage to the world economy from the coronavirus pandemic.
But most indices are now back to pre-Covid-19 levels. MSCI’s broadest index of Asia shares outside of Japan advanced for a ninth straight session for its longest winning streak since early 2018. The 49-country world index is up nearly 45 per cent from 4-year lows struck in mid-March. – Bloomberg/Reuters
